New South Wales Supreme Court CITATION : Patterson v Cohen [2005] NSWSC 635 HEARING DATE(S) : 27 & 28 June 2005 JUDGMENT DATE : 28 June 2005 JURISDICTION : Equity JUDGMENT OF : Hamilton J DECISION : Plaintiff entitled to "fruits of litigation" lien over fund in Court. CATCHWORDS : PROFESSIONS AND TRADES [169] - Lawyers - Liens - Possessory lien - When lien arises - Costs not yet assessed - Principles applicable. Industrial Relations Act 1996 s 106 LEGISLATION CITED : Legal Profession Act 1987 Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 Abdul-Karim v The Attorney General's Department [1999] NSWSC 79 Twigg v Kung (2002) 55 NSWLR 485 CASES CITED : Worrell v Power & Power (1993) 46 FCR 214 In the Estate of Fuld Decd (No 4) [1968] P 727 Kelso v McCulloch NSWSC 24 October 1994 unreported Roam Australia Pty Ltd v Telstra Corporation Ltd FCA 22 September 1997 unreported Darcy Reginald Francis Patterson t/as H M Symonds & Britten (P) Yehuda Leon Cohen (D1) PARTIES : Sir Moses Montefiore Jewish Home (D2) Minter Ellison Lawyers (D3) FILE NUMBER(S) : SC 2656/05 T J Hancock (P) COUNSEL : In person (D1) G Walker, Solicitor (D2 & 3) H M Symonds & Britten (P) SOLICITORS : In person (D1) Minter Ellison (D2 & 3) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J TUESDAY, 28 JUNE 2005 2656/05 DARCY REGINALD FRANCIS PATTERSON t/as H M SYMONDS & BRITTEN v YEHUDA LEON COHEN & ORS JUDGMENT 1 HIS HONOUR: These proceedings concern a sum of money paid into Court. The plaintiff, upon a summons and by notice of motion, claims in relation to that sum of money relief by way of a declaration that it is entitled to a lien in respect of costs rendered by the plaintiff as a solicitor for work done for the first defendant. The first defendant by notice of motion claims the payment out to him of those moneys or part of them for use by him to conduct certain legal proceedings. 2 The law in relation to what is commonly called "fruits of litigation" liens has been the subject of considerable discussion in the courts of recent years. The locus classicus in this State is in the judgment of Jordan CJ in Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 at 100. A compendious account of the recent law was given by Lehane J in Roam Australia Pty Ltd v Telstra Corporation Ltd FCA 22 September 1997 unreported. There his Honour said: " The solicitors' claimed equitable interest The general principle is now well established: A solicitor has no lien for his costs over any property which has not come into his possession. If, however, as the result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor acquires no common law title to his client's right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, which is analogous to the right which would be created by an equitable assignment of a corresponding part of the money by the client to the solicitor. That is to say, the solicitor has an equitable right to be paid his costs out of the money; and if he gives notice of his right to the person who is liable to pay it, only the solicitor and not the client can give a good discharge to that person for an amount of the money equivalent to the solicitor's costs ... Ex parte Patience: Makinson v The Minister (1940) 40 SR (NSW) 96 at 100 per Jordan CJ. The Full Court of this Court approved and applied Patience in Worrell v Power & Power (1993) 46 FCR 214 at 223, 224. It has been applied in several later decisions: they include Akki Pty Ltd v Martin Hall Pty Ltd (1994) 35 NSWLR 470 at 474; Kison v Papasian (1993) 61 SASR 567; Twigg v Keady (1996) FLC 92-712; Doyles Construction Lawyers v Harsands Pty Ltd , McLelland CJ in Eq unreported 24 December 1996. Patience and the cases which have followed it make a number of things clear. First, the principle applies equally to judgments and compromises; secondly, the right does not depend upon any intervention by the Court, the assistance of which 'is invoked not to create the rights but to enforce them [sic] ( Patience at 101); thirdly, the amount which a solicitor is entitled to recover out of the judgment debt or amount owing under the compromise is the amount of costs and disbursements which the solicitor is entitled to recover from the client (no doubt that entitlement may depend upon agreement, taxation or assessment) and the claim may be asserted even though the precise amount to which the solicitor is entitled has not, by the appropriate means, been ascertained: Patience at 105; Twigg at 83,552; Canatan . The right appears to be based upon the fact that the solicitor was 'instrumental' in obtaining the judgment or compromise ( Patience at 103) or ( Worrell at 224) that the judgment or compromise has 'come about by reason of [the solicitor's] exertions'. The entitlement may, nevertheless, arise although the solicitor's exertions came to an end before the judgment was obtained or the compromise negotiated. In Twigg , the solicitors acted in property settlement proceedings under the Family Law Act 1975 for some years, but ceased to act about 13 months before judgment in the proceedings was obtained. Their claim was, nevertheless, upheld. In Doyles the solicitors acted in District Court proceedings. The proceedings were settled by an agreement negotiated directly between the parties. The solicitors were not involved. The agreement provided for payment to the solicitors' client of $40,000. Shortly after the agreement was made, but before any payment was made under it, the solicitors ceased to act. McLelland CJ in Eq (at 4) said this: It was submitted ... that there was no sufficient causal link between work that Doyles had done in relation to the proceedings and the ultimate settlement, since the March settlement agreement was negotiated directly between the parties and Doyles had ceased to act before the ultimate settlement was negotiated. In my opinion it is unnecessary for Doyles to demonstrate that the settlement came about as the result of specific efforts by them. According to the statement of principle [in Patience ] ... it is sufficient to give rise to the equitable right that the settlement resulting in payment to the client came about as a result of the legal proceedings and that the solicitor had acted for the client in those proceedings, this being treated as a sufficient causal link. I do not think it follows that solicitors will always, in a case where they have acted for a party to proceedings in which ultimately a judgment is obtained, or which are compromised, obtain an equitable interest in the judgment or settlement proceeds commensurate with the amount they are owed for costs and disbursements, no matter how slight or fleeting their participation may have been or even if they acted only for a short period after the commencement of proceedings later conducted by others through interlocutory procedures and trial to judgment. In each case, in my view, it must be a question whether the requisite causal link is established, whether the judgment or compromise is, on the evidence, to be regarded as brought about (or partially brought about) by the efforts of the solicitors. In Doyles the causal link was not difficult to see: although others had acted for the plaintiffs at earlier stages in the proceedings, Doyles acted for a period of about ten months up to, and overlapping with the time when the compromise was negotiated. Though they were not involved in the negotiation, no doubt they could be seen to have carried the litigation to the point where a successful negotiation could take place. In Twigg (see the judgment of Finn J at 83,562) it was admitted on the pleadings that work had been done by the solicitors towards the attainment of the judgment. Where solicitors have been actively involved over a considerable period in acting for a party to successful litigation, the conclusion is likely to follow that the solicitors have been instrumental in obtaining the result, or that the result is (at least in part) due to the solicitors' efforts." 3 I should add to the collection of authority made by Lehane J additional cases, two of them decided after Roam Australia. They are the decisions of Young J (as his Honour then was) in Kelso v McCulloch NSWSC 24 October 1994 unreported and Abdul-Karim v The Attorney General's Department [1999] NSWSC 79 and the decision of the Court of Appeal in Twigg v Kung (2002) 55 NSWLR 485. 4 From the judgment of Lehane J in Roam Australia and authority there cited the following principles may be derived: (1) If as a result of legal proceedings in which a solicitor has acted for a client the client obtains moneys by way of judgment or compromise, the solicitor acquires an equitable right to have his costs paid out of the moneys. (2) If the solicitor gives notice of his right to the person liable to pay the moneys, only the solicitor and not the client can give a good discharge to that person for the amount equivalent to the solicitor's costs. (3) The solicitor's right does not depend upon intervention by the Court, the assistance of which is invoked not to create, but to enforce, the right. (4) The solicitor's claim may be asserted even thought the precise amount to which the solicitor is entitled has not yet been agreed or assessed. (5) It does not matter that the solicitor has ceased to act for the client before the recovery was effected, if the solicitor's work was instrumental in obtaining the judgment or compromise. (6) The solicitor's work will be regarded as instrumental if the solicitor did work for the client in the proceedings and the solicitor's participation was not slight or fleeting or for a short period only. 5 To those principles I add the following derived from the cases cited in [3]: (7) Even where the payment of costs pursuant to a lien is made after the commencement of a bankruptcy, the payment will prevail over the rights of unsecured creditors where it is clear that the lien existed before the bankruptcy commenced: Worrell v Power & Power (1993) 46 FCR 214. (8) The remedy provided under this doctrine is a flexible one and the Court will model the remedy given according to the circumstances of the case: see per Young J in Abdul-Karim . This is illustrated by the orders made by the New South Wales Full Court in Ex parte Patience and by Scarman J in the Probate Division of the High Court in England in In the Estate of Fuld Decd (No 4) [1968] P 727. 6 Turning to the facts of this matter, the first defendant, Rabbi Cohen, was dismissed from his employment with the second defendant, Sir Moses Montefiore Jewish Home. This led to a plethora of litigation running to at least six separate sets of proceedings in at least four courts or tribunals. Some of the proceedings were commenced by Rabbi Cohen as plaintiff, others were commenced against him as defendant. The two which are principally the focus of this judgment were proceedings commenced in the Common Law Division of this Court by Rabbi Cohen against, among others, the second defendant ("the defamation proceedings"), and proceedings commenced by Rabbi Cohen against the second defendant in the Industrial Relations Commission under s 106 of the Industrial Relations Act 1996 ("the IRC proceedings"). 7 At early stages of both sets of proceedings the present plaintiff acted as Rabbi Cohen's solicitor. The IRC proceedings have not been concluded and are still to be brought to trial. In respect of those proceedings the plaintiff had had his costs against Rabbi Cohen assessed and the certificate of assessment is in evidence before me. There is no doubt, however, that in relation to those costs the only relationship between the plaintiff and Rabbi Cohen is that of creditor and debtor. The defamation proceedings, however, under the aegis of solicitors other than the plaintiff, have been brought to a conclusion. They were settled, a sum of money was paid in settlement and that sum has now been paid into Court in these proceedings to abide the order of the Court. The amount of the sum paid in settlement is confidential as between Rabbi Cohen and the second defendant and will not be mentioned in the course of this judgment. 8 It is common ground that under the settlement agreement the second defendant also undertook by contractual promise to pay Rabbi Cohen's costs of the defamation proceedings, but there is no order in respect of those costs. It is in respect of the sum now in Court that the plaintiff claims a lien, as being fruits of the defamation proceedings recovered by Rabbi Cohen, partly by the plaintiff's efforts during the period that the plaintiff acted as his solicitor. 9 At the hearing before me it appeared that there was or might be a contest as to the terms of the plaintiff's retainer by Rabbi Cohen, or even as to whether there was a retainer at all. However, over the course of a day and a half, more ample evidence was led on both sides and, in one sense, the conflict as to the terms of the retainer evaporated. It became plain that it was a term of the retainer that the plaintiff would act for Rabbi Cohen in the defamation proceedings on a no win/no fee basis. That basis was mentioned in correspondence between them in December 2002. To any extent that it remained unclear from that correspondence as to whether a contract of retainer had been concluded between them, that is made plain by what Rabbi Cohen wrote to the Supreme Court's Costs Assessment Manager in a communication he sent to her on 15 March 2004 concerning the assessment of the plaintiff's costs in the IRC matter. In that document he stated: "15 Mr Patterson acted for me for the defamation case on conditional costs basis. And on my request, Mr Patterson provided me a cost estimate for the defamation proceedings without a written cost agreement (see Schedule A)". It is plain from this that an agreement was concluded and it was concluded on a no win/no fee basis. 10 Insofar as it was suggested that the no win/no fee basis was established between the plaintiff and Rabbi Cohen in a conversation between them as they together left the chambers of Clive Evatt of counsel after a conference, I do not need to come to any conclusion, in view of the foregoing. I could not readily come to a conclusion about this matter. On the one hand, the plaintiff has appeared to me to be an honest witness attempting to give the Court his best recollection. However, there is no trace in any of the written material of who attended at a conference that almost undoubtedly did take place with Mr Evatt. The plaintiff's evidence, however, is faced by the staunch denial of Rabbi Cohen that he was ever present at any conference with Mr Evatt, so that the conversation cannot have occurred as averred by the plaintiff. Equally, it has not been established before me that Rabbi Cohen has been in any way dishonest in his evidence in relation to this or any other matter. On that basis, it would be very difficult to come one way or the other to a conclusion on the balance of probabilities that such a conversation took place. However, as I have said, that is of no moment. The contractual term is established by other evidence. 11 There is conflict, however, as to what is meant by, or what the incidence is, of a contract on a no win/no fee basis. Rabbi Cohen has argued before me that it gives the plaintiff a right to recover his costs from Rabbi Cohen only out of moneys received or to be received specifically in payment of costs. The sum in court was not received for costs. The obligation of the second defendant under the agreement with Rabbi Cohen to pay the costs of the defamation proceedings has not yet led to the payment to Rabbi Cohen or at all of any costs of those proceedings, nor have those costs been quantified as between Rabbi Cohen and the second defendant. The situation is, of course, complicated by the fact that other solicitors subsequently acted for Rabbi Cohen in respect of the defamation proceedings and the situation as to their costs appears still to be completely up in the air. No assessment of the plaintiff's costs for acting in the defamation proceedings has yet been sought by anyone. 12 I do not accede to that submission of Rabbi Cohen as to the meaning of a conditional costs agreement on a no win/no fee basis. The condition that is imposed on the costs agreement by those words is a condition that, if there is no recovery as a result of the litigation, then no costs will be payable to the solicitor, but that, if there is such a recovery, costs will be payable in the usual way. The basis in this case was set out in the costs estimate referred to above which was furnished by the plaintiff to Rabbi Cohen in December 2004. 13 So far as concerns the suggestion that the plaintiff is limited to recourse to money specifically recovered as costs for payment of his costs, that result would require a term or condition of the retainer, not that the retainer be on a no win/no fee basis, but specifically on the basis that the legal practitioner should be entitled to recover his fees only out of and to the extent of money specifically recovered as costs. There is no evidence of such a term in the retainer in the present case. 14 The plaintiff was, in his own word, "lax" in his compliance with the requirements of the Legal Profession Act 1987 ("the LPA") as to a costs agreement and estimates of costs in relation to the IRC proceedings and at least in relation to a formal costs agreement in relation to the defamation proceedings. The statutory consequences, however, of those particular breaches are that no costs can be recovered without there being an assessment, but the costs can be recovered once an assessment is made. That is why a formal assessment was sought and made in relation to the IRC proceedings. The plaintiff has not yet sought an assessment in relation to his costs in the defamation proceedings but, once that assessment is made, the recovery of those costs will not be prevented by the non compliance with the LPA mentioned above. 15 Rabbi Cohen protests that it is not just that the plaintiff should be able to exercise a right over the fund that is the fruits of the defamation litigation, since he, Rabbi Cohen, needs those funds to prosecute the incomplete IRC proceedings and because the exercise of the lien may give the plaintiff preference over other creditors of Rabbi Cohen. However, it is made quite plain in the authorities cited above, and particularly in the decision of the Full Federal Court in Worrell, that the establishment of a fruits of litigation lien in fact gives the relevant legal practitioner a form of equitable security over the subject matter in preference to the rights of people who hold simply the status of unsecured creditors (which is, indeed, the status of the plaintiff himself vis a vis Rabbi Cohen in respect of the costs of the IRC proceedings mentioned above). 16 It was also suggested by Rabbi Cohen that the plaintiff had not really done work for him in the defamation proceedings, the whole of the work having been done by barristers, including Allan Blank. So far as it matters, it is quite plain on the evidence before me that the plaintiff did do substantial work in the proceedings over a period of months, but precisely what work he did and the proper charge for it is in the province of the costs assessor, when he or she attends to that function, and is not to be adjudged by this Court in determining proceedings relating to the existence of the lien. However, in view of the period during which the plaintiff acted and did work for Rabbi Cohen, I find that a causal link is established between that work and the recovery ultimately effected. 17 It is my conclusion that it flows from the foregoing that the plaintiff has established a fruits of litigation lien over the fund in court. The defamation proceedings led to the creation of the fund in court. The plaintiff was not the only practitioner who did work in those proceedings and he was dismissed from those proceedings before the compromise was reached, but that does not matter. He is entitled to the lien. 18 In draft short minutes laid before me it was propounded on his behalf that there should be a declaration of the existence of a lien in the plaintiff's favour over the fund in court and appropriate injunctive relief. Having made the finding that I have, I do not propose to grant relief in either of those forms. The fact that there are other persons who may at some stage claim rights of lien over the same fund makes it undesirable that there be an unqualified declaration of lien in the plaintiff's favour. Nor is there any necessity for such relief. It appears from cases such as Ex parte Patience and Fuld that all that should be given is the relief that is necessary to protect the right of the legal practitioner that is established. It is not in this case necessary even to grant injunctive relief, since the fund is not going anywhere. It is in court and will be paid out of court only by virtue of an order of the Court. 19 In fairness to Rabbi Cohen, I am not prepared to allow a situation to persist in which the plaintiff has a right over the fund that is inchoate and is not determined. For perfect clarity I propose to direct that the fund remain in court to abide the further order of the Court, albeit that that would be the situation without a specific further order. However, the Court ought allow that situation to prevail for the purpose of protection of the plaintiff's rights only if the plaintiff now pursues his inchoate right to definition. 20 I propose to require the plaintiff to undertake to the Court that he will, within seven days, instruct his costs assessor to prepare an assessable bill of costs; that he will, upon receipt of the bill, promptly lodge that for assessment with the Costs Assessment Manager of the Supreme Court; and that he will duly and diligently prosecute the process of assessment to completion. The current estimate that has been given to the Court is that the costs assessor will prepare a bill within six weeks. The current estimate for assessment in the Costs Assessment Manager's office is four to 12 weeks. The latter is illustrated by the fact that the assessment of the plaintiff's bill of costs in the IRC proceedings, on the evidence, took about eight weeks. 21 The foregoing will lead not only to relief on the plaintiff's claim in the form indicated above but will lead to the dismissal of the first defendant's notice of motion. …oOo… 22 The question of the costs of the proceedings has now been debated before me. The plaintiff asked for costs against the first defendant, on the basis that the first defendant has contested his claim for relief and has himself made a claim for relief against the plaintiff's interests, which claim he has lost. Rabbi Cohen has put some submissions concerning that matter, which have been recorded. However, he has said nothing which would deflect me from making the usual order as to costs between a successful plaintiff and an unsuccessful defendant. The order that I propose to make is that the first defendant pay the plaintiff's costs of the proceedings. 23 Rabbi Cohen has submitted that this ordinary result as to costs should not flow against him because, in effect, of the lack of a letter of demand before action. There are two answers to this. One that the plaintiff makes is that he was unable to find Rabbi Cohen at the relevant time. More importantly, failure to warn before action can lead to loss of a plaintiff's costs where, immediately upon the action being brought, a defendant says, "Of course I concede the plaintiff's position, there was no need to bring this action and incur these costs, but I wasn't asked my attitude before action." In this case Rabbi Cohen has resolutely and to the end resisted the notion that the plaintiff is entitled to any relief, so that the lack of notice before action becomes irrelevant. 24 The plaintiff also claims costs against the second and third defendants. However, the proceedings were commenced on 28 April 2005. By the next day, 29 April 2005, the second and third defendants in effect became submitting defendants and agreed to orders for the payment of the fund into court. In my view, the plaintiff cannot have his costs against them after that day. 25 Miss Walker, solicitor, who has appeared before me for the second and third defendants, has valiantly endeavoured to deflect any order for costs. However, the evidence shows that the plaintiff had conversations with Miss Sheena Leibowitz of Minter Ellison before the proceedings were commenced and in those conversations Miss Leibowitz made it plain that the second and third defendants regarded themselves as at liberty to act in defiance of the plaintiff's alleged right, which has now been vindicated, and that the money would only be paid into Court "if you get an injunction". 26 In those circumstances, there is no doubt that it was necessary for the plaintiff to join the second and third defendants in the proceedings and it is my view that those defendants should also pay the plaintiff's costs until they became, in effect, submitting defendants. The order will therefore be that the second and third defendants pay the plaintiff's costs of these proceedings up to and including 29 April 2005. 27 Rabbi Cohen, in his notice of motion, which has failed, asked for an order for all costs to be paid to him. However, he has no entitlement to have any order for costs made in his favour in the events which have occurred. 28 In those circumstances orders are made in accordance with the short minutes initialled by me and placed with the papers. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.